HOUSTON, Oct. 30, 2018 /PRNewswire/ -- McDermott
International, Inc. (NYSE: MDR) ("McDermott", the "Company", "we"
or "our") today reported revenues of $2.3
billion and net income of $2
million, or $0.01 per diluted
share, for the third quarter of 2018. Results reflect solid
execution across the portfolio of projects, partially offset by
costs of $103 million related to
intangibles amortization, the Combination Profitability Initiative
("CPI") and transaction costs associated with McDermott's
combination with CB&I (the "Combination"). Net income in the
quarter was also unfavorably impacted by higher than expected tax
expense. The changes in estimates on the three projects discussed
below are not reflected in the determination of net income for the
third quarter, as those amounts have instead been reflected in
purchase accounting adjustments relating to the Combination.
Excluding the charges identified above, McDermott's adjusted net
income for the third quarter was $89
million, as detailed in an accompanying table. Adjusted
diluted earnings per share were $0.20, which includes $68
million of amortization related to acquired intangible
assets.
Financial
Highlights Table
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
Sep 30,
2018
|
|
|
Sep 30,
2017
|
|
|
Sep 30,
2018
|
|
|
Sep 30,
2017
|
|
|
($ in millions,
except per share amounts)
|
|
Revenues
|
$
|
2,289
|
|
|
$
|
959
|
|
|
$
|
4,632
|
|
|
$
|
2,267
|
|
Operating
Income
|
|
129
|
|
|
|
125
|
|
|
|
242
|
|
|
|
262
|
|
Operating
Margin
|
|
5.6
|
%
|
|
|
13.0
|
%
|
|
|
5.2
|
%
|
|
|
11.6
|
%
|
Net Income
|
|
2
|
|
|
|
95
|
|
|
|
84
|
|
|
|
153
|
|
Diluted
EPS1
|
|
0.01
|
|
|
|
1.00
|
|
|
|
0.60
|
|
|
|
1.61
|
|
Total Intangibles
Amortization2
|
|
68
|
|
|
|
-
|
|
|
|
90
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating
Income3
|
|
232
|
|
|
|
125
|
|
|
|
482
|
|
|
|
262
|
|
Adjusted Operating
Margin3
|
|
10.2
|
%
|
|
|
13.0
|
%
|
|
|
10.4
|
%
|
|
|
11.6
|
%
|
Adjusted Net
Income3,4
|
|
89
|
|
|
|
95
|
|
|
|
197
|
|
|
|
153
|
|
Adjusted
EPS1,3,4
|
|
0.20
|
|
|
|
1.00
|
|
|
|
1.28
|
|
|
|
1.61
|
|
Adjusted
EBITDA3
|
|
275
|
|
|
|
155
|
|
|
|
586
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Provided by
Operating Activities
|
|
(221)
|
|
|
|
45
|
|
|
|
214
|
|
|
|
136
|
|
Capital
Expenditures
|
|
19
|
|
|
|
16
|
|
|
|
62
|
|
|
|
97
|
|
Free Cash
Flow3
|
|
(240)
|
|
|
|
29
|
|
|
|
152
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
Capital5
|
|
(1,915)
|
|
|
|
260
|
|
|
|
(1,915)
|
|
|
|
260
|
|
|
Note: Results for the
nine months ended September 30, 2018 include McDermott for the full
period and CB&I for the period from May 11 to September 30,
2018. 2017 figures are as originally reported by McDermott and do
not reflect a presentation of combined results.
|
1 Diluted
EPS and adjusted EPS were calculated using weighted average diluted
shares of 181 million and 95 million for the three months ended
September 30, 2018 and 2017, respectively, and weighted average
diluted shares of 141 million and 95 million for the nine months
ended September 30, 2018 and 2017, respectively.
|
2 Total
intangibles amortization includes the sum of project-related
intangibles amortization, other intangibles amortization and
amortization of investments in unconsolidated affiliates, all of
which are associated with the intangible assets and liabilities
acquired in the Combination.
|
3 Adjusted
operating income, adjusted operating margin, adjusted net income,
adjusted diluted net income per share ("adjusted EPS") and adjusted
EBITDA reflect adjustments to Operating Income computed in
accordance with U.S. generally accepted accounting principles
("GAAP") to add back approximately $5 million of Combination
transaction costs, $31 million of costs to achieve CPI and $68
million of intangibles amortization for the third quarter of 2018.
Additionally, adjustments to Net Income computed in accordance with
U.S. GAAP for the nine months ended September 30, 2018 include $14
million of debt extinguishment costs and a $117 million tax benefit
from the internal transfer of certain intellectual property rights.
Free cash flow is equal to cash provided by operating activities
less capital expenditures.
|
The reconciliations
of adjusted operating income, adjusted operating margin, adjusted
net income, adjusted EPS, adjusted EBITDA and free cash flow to the
respective most comparable GAAP measures are provided in the
section titled "Third Quarter 2018 Operating Results"
below.
|
4 The
calculations of adjusted net income and adjusted EPS reflect the
tax effects of non-GAAP adjustments during the period. In
jurisdictions in which we currently do not pay taxes, no tax impact
is applied to Non-GAAP adjusting items.
|
5 Working
capital is defined as current assets, less cash and cash
equivalents, restricted cash, and project-related intangibles,
minus current liabilities, less current maturities of long-term
debt and project related intangible liabilities.
|
"Our underlying results reflect solid operating performance,
accelerated progress in identifying both revenue and cost synergies
and implementing a new cost culture, an improving macro environment
and strong customer receptivity to our recent combination, which
contributed to a robust booking quarter and a record-setting
revenue opportunity pipeline of $80.3
billion," said David Dickson,
President and Chief Executive Officer of McDermott. "We have also
had continued momentum with strong awards early in the fourth
quarter, including the recently announced ONGC KG-DWN 98/2 award in
consortium with BHGE and Larsen and Toubro. Our portion of that
contract is approximately $700
million."
"Additionally, we have completed a strategic review of our
business portfolio and have determined that the tank storage
business and the U.S. pipe fabrication business are not core to our
vertical integration. As such, we have developed plans to
seek buyers for each of the two businesses, which together had 2017
revenues of approximately $1.5
billion. We anticipate receiving proceeds in excess of
$1 billion upon the sale of those
assets and expect to use a majority of the proceeds to reduce debt
under our term loan. We have also entered into definitive
agreements with investment funds managed by the Merchant Banking
Division of The Goldman Sachs Group Inc. providing for the private
placement of $300 million of
redeemable preferred stock, together with warrants to purchase
3.75% of our common stock, subject to customary closing conditions.
In addition, we have separately received commitments for a
$230 million increase in letter of
credit capacity, subject to closing conditions. Proceeds from the
private placement are expected to provide liquidity to fund working
capital needs, and the increase in letter of credit capacity will
enhance the Company's readiness to book anticipated very strong
order intake."
Update on Estimated Costs on Selected Projects
For the third quarter of 2018, McDermott recorded $744 million of changes in estimates on three
projects, including $482 million on
the Cameron LNG project, $194 million
on the Freeport LNG project and $68
million on the Calpine gas power project. Under the
provisions of purchase accounting applicable to the Combination,
these changes in estimates were reflected as a change in intangible
assets, including goodwill, and, as a result, did not have a direct
impact on the Company's net income for the third quarter.
"After five months of ownership, we now believe we have a
thorough and definitive understanding of the schedule and cost
position on each of the projects – and clear visibility into the
operational and financial path to completion," said Dickson. "We
have taken significant steps to address performance issues on the
three projects. Specifically, we have installed a new
executive leadership team – including our new Chief Operating
Officer and the Area Senior Vice President announced with the
Combination – and made improvements in reporting structures,
execution plans, forecast cost-base methodology and the flow of
communication with our consortium members and customers. We expect
no further material changes in the cost estimates on these
projects. Additionally, significant progress has been made on the
remaining projects in the portfolio and we have identified no
additional projects with significant remaining execution risk."
Additional detail about the status of each project as of the end
of the third quarter of 2018 is presented below.
- Cameron LNG Project – the changes in estimates followed a
detailed reassessment of the schedule and cost base. The analysis
included a comprehensive review of the work to go, including work
for which we may not be compensated -- such as rework -- and a
reduction in productivity estimates. The reassessed schedule and
estimates reflect regional limitations on labor availability and
quality, the elimination of an incentive opportunity and the
addition of liquidated damages associated with the completion
schedule. Operationally, the project continues to progress well,
with commencement of commissioning expected in the fourth quarter
and first LNG expected in the first quarter of 2019. As of the end
of the third quarter of 2018, the project was 83% complete and had
approximately $557 million of
McDermott's portion of expected revenues to go until expected
completion. During the quarter, the Cameron LNG project contributed
$191 million to revenues and
($34) million to cash flows from
operations. Phase 1 of the Cameron
project is scheduled for completion in Q2 2019; Trains 2 and 3 are
expected to be completed in Q4 2019 and Q1 2020, respectively.
- Freeport LNG Project – the changes in estimates followed a
detailed reassessment of the schedule and cost base and a reduction
in forecasted labor productivity resulting from regional
limitations on labor availability and quality. The change in
estimates was also impacted by the Company's decision, reached in
conjunction with ongoing customer discussions, to include
liquidated damages associated with the pre-Hurricane Harvey
schedule. The updated forecast is based on rigorous reassessments
and views by project teams and site management, including the area
supervisor's assessment of work to go. At the end of the third
quarter of 2018, the project was approximately 82% complete and had
approximately $622 million of
McDermott's portion of expected revenues to go until completion.
During the quarter, the Freeport LNG project contributed
$220 million to revenues and
($115) million to cash flows from
operations. Trains 1, 2 and 3 are expected to be completed in Q3
2019, Q1 2020 and Q2 2020, respectively.
- Calpine Gas Turbine Power Project – the changes in estimates
resulted from our decision to decrease the productivity factor on
the future work by 20%. The major driver of increased costs on
Calpine has been labor productivity involving both direct-hire and
sub-contract employees. The newly assumed productivity factor also
considered lessons learned on the closeout experience on the
recently completed IPL project and we believe is realistic and
achievable. First fire is anticipated during the fourth quarter of
2018. During the quarter, the Calpine Gas Turbine Power project
contributed $29 million to revenues
and ($14) million to cash flows from
operations. As of the end of the third quarter of 2018, the project
was 91% complete and had approximately $27
million of expected revenues to go until expected completion
in Q1 2019.
Third Quarter 2018 Operating Results
McDermott reports its financial results in accordance with U.S.
generally accepted accounting principles ("GAAP"). This press
release also includes several Non-GAAP financial measures as
defined under the SEC's Regulation G. The following tables
reconcile certain Non-GAAP financial measures used in this press
release to comparable GAAP financial measures. Additional
reconciliations are provided in the accompanying tables.
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
Sep 30,
2018
|
|
|
Sep 30,
2017
|
|
|
Sep 30,
2018
|
|
|
Sep 30,
2017
|
|
|
($ in millions,
except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Net Income
Attributable to MDR
|
$
|
2
|
|
|
$
|
95
|
|
|
$
|
84
|
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
costs1
|
|
5
|
|
|
|
-
|
|
|
|
45
|
|
|
|
-
|
|
Costs to achieve
CPI2
|
|
31
|
|
|
|
-
|
|
|
|
106
|
|
|
|
-
|
|
Intangibles
amortization3
|
|
68
|
|
|
|
-
|
|
|
|
90
|
|
|
|
-
|
|
Debt extinguishment
costs4
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
Tax benefit on
intercompany transfer of IP5
|
|
-
|
|
|
|
-
|
|
|
|
(117)
|
|
|
|
-
|
|
Total Non-GAAP Adjustments
|
|
103
|
|
|
|
-
|
|
|
|
138
|
|
|
|
-
|
|
Tax Effect of Non-GAAP
Changes6
|
|
(17)
|
|
|
|
-
|
|
|
|
(25)
|
|
|
|
-
|
|
Total Non-GAAP
Adjustments (After Tax)
|
|
87
|
|
|
|
-
|
|
|
|
113
|
|
|
|
-
|
|
Non-GAAP Adjusted
Net Income Attributable to McDermott
|
$
|
89
|
|
|
$
|
95
|
|
|
$
|
197
|
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Operating
Income
|
$
|
129
|
|
|
$
|
125
|
|
|
$
|
242
|
|
|
$
|
262
|
|
Non-GAAP
Adjustments7
|
|
103
|
|
|
|
-
|
|
|
|
240
|
|
|
|
-
|
|
Non-GAAP Adjusted
Operating Income
|
$
|
232
|
|
|
$
|
125
|
|
|
$
|
482
|
|
|
$
|
262
|
|
Non-GAAP Adjusted
Operating Margin
|
|
10.2
|
%
|
|
|
13.0
|
%
|
|
|
10.4
|
%
|
|
|
11.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Diluted
EPS
|
$
|
0.01
|
|
|
$
|
1.00
|
|
|
$
|
0.60
|
|
|
$
|
1.61
|
|
Non-GAAP
Adjustments8
|
|
0.19
|
|
|
|
-
|
|
|
|
0.68
|
|
|
|
-
|
|
Non-GAAP Adjusted
EPS
|
$
|
0.20
|
|
|
$
|
1.00
|
|
|
$
|
1.28
|
|
|
$
|
1.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
computation of income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
180
|
|
|
|
95
|
|
|
|
140
|
|
|
|
90
|
|
Diluted
|
|
181
|
|
|
|
95
|
|
|
|
141
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
Attributable to MDR
|
$
|
2
|
|
|
$
|
95
|
|
|
$
|
84
|
|
|
$
|
153
|
|
Depreciation &
Amortization
|
|
107
|
|
|
|
28
|
|
|
|
187
|
|
|
|
78
|
|
Interest Expense,
Net
|
|
86
|
|
|
|
12
|
|
|
|
169
|
|
|
|
51
|
|
Provision for Income
Taxes
|
|
44
|
|
|
|
19
|
|
|
|
(19)
|
|
|
|
53
|
|
EBITDA9
|
|
239
|
|
|
|
155
|
|
|
|
421
|
|
|
|
335
|
|
Non-GAAP
Adjustments
|
|
36
|
|
|
|
-
|
|
|
|
165
|
|
|
|
-
|
|
Adjusted
EBITDA9
|
$
|
275
|
|
|
$
|
155
|
|
|
$
|
586
|
|
|
$
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities
|
$
|
(221)
|
|
|
$
|
45
|
|
|
$
|
214
|
|
|
$
|
136
|
|
Capital
expenditures
|
|
19
|
|
|
|
16
|
|
|
|
62
|
|
|
|
97
|
|
Free cash
flow
|
$
|
(240)
|
|
|
$
|
29
|
|
|
$
|
152
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP
Revenues
|
$
|
2,289
|
|
|
$
|
959
|
|
|
$
|
4,632
|
|
|
$
|
2,267
|
|
|
Note: All amounts
have been rounded to the nearest million, except per share amounts.
Totals may not foot as a result of rounding.
|
1 We
recognized $5 million and $45 million of transaction costs
associated with the Combination during the three and nine months
ended September 30, 2018, respectively.
|
2 Costs to
achieve CPI include integration and restructuring costs. We
incurred $31 million and $106 million of costs from CPI during the
three and nine months ended September 30, 2018,
respectively.
|
3
Intangibles amortization includes the amortization of all acquired
intangibles from the Combination, including project-related
intangibles, other intangible assets (including process
technologies, trade names, trademarks, and customer relationships,
and amortization of intangibles associated with investments in
unconsolidated affiliates.
|
4 As part
of the financing for the Combination and the establishment of our
new capital structure during Q2 2018, we recognized expense
associated with the prepayment of our prior credit facility and
senior notes of $14 million, which included a make-whole premium
and the accelerated write-off of debt issuance costs.
|
5 During
Q2 2018, we realized a tax benefit of $117 million resulting from
the internal transfer of certain intellectual property (IP)
rights.
|
6 The
adjustments to GAAP Net Income have been income tax effected when
included in net income based upon the respective tax jurisdiction
the adjustments were incurred in.
|
7 Includes
the non-GAAP adjustments described in footnotes 1, 2 and 3 above.
Adjustments to operating income exclude the debt extinguishment
costs and tax benefit from the intercompany transfer of IP, as
those items are not included in the computation of operating
income.
|
8 Adjusted
EPS includes the intangibles amortization, net of tax, described in
footnote 3 above.
|
9 We
define EBITDA as net income plus depreciation and amortization,
interest expense, net, and provision for income taxes. We
define adjusted EBITDA as EBITDA less the Combination transaction
costs, costs to achieve CPI and debt extinguishment costs detailed
in the immediately preceding pages. We have included EBITDA
and adjusted EBITDA disclosures in this press release because
EBITDA is widely used by investors for valuation and comparing our
financial performance with the performance of other companies in
our industry and because adjusted EBITDA provides a consistent
measure of EBITDA relating to our underlying business. Our
management also uses EBITDA and adjusted EBITDA to monitor and
compare the financial performance of our operations. EBITDA
and adjusted EBITDA do not give effect to the cash that we must use
to service our debt or pay our income taxes, and thus do not
reflect the funds actually available for capital expenditures,
dividends or various other purposes. In addition, our
presentation of EBITDA and adjusted EBITDA may not be comparable to
similarly titled measures in other companies' reports. You should
not consider EBITDA or adjusted EBITDA in isolation from, or as a
substitute for, net income or cash flow measures prepared in
accordance with U.S. GAAP.
|
McDermott's net income of $2
million for the third quarter of 2018 was attributable to
solid execution across the portfolio of projects, largely offset by
$103 million of costs related to
intangibles amortization, CPI and transaction costs associated with
the Combination. Net income in the quarter was also unfavorably
impacted by higher than expected tax expense.
McDermott's revenues of $2.3
billion were driven by the execution of downstream projects
in North, Central and South
America (NCSA) and offshore projects in the Middle East and North Africa (MENA).
McDermott's operating income and operating income margin for the
third quarter of 2018 were $129
million and 5.6%. Adjusted operating income for the
third quarter of 2018 was $232
million and reflected the same primary factors that drove
revenue performance in the quarter. The adjusted operating income
margin was 10.2%, aided by strong performance in the MENA and
Technology segments.
Cash and Liquidity
McDermott's cash from operating activities during the third
quarter of 2018 was $(221) million
due largely to the continued funding of increased costs on the
Cameron, Freeport and Calpine projects. Total cash
availability was $1.4 billion at the
end of the period, composed of $580
million of unrestricted cash and $858
million available under the revolver. Additionally,
McDermott had $1.1 billion of
availability under its principal letter of credit facility,
uncommitted bilateral credit facilities, surety lines and cash
secured letter of credit facility. The Company was in compliance
with all financial covenants as of the end of the third quarter of
2018.
The proceeds from the private placement transaction with
investment funds managed by the Merchant Banking Division of The
Goldman Sachs Group Inc. ("Goldman Sachs MBD") referred to above
are expected to be used for general corporate purposes, including
working capital requirements and, specifically, the increased cash
requirements for the Cameron,
Freeport and Calpine projects.
Dividends will accrue on the preferred stock at a rate of 12.0% per
annum. McDermott will have the option to pay dividends in kind
(through the issuance of additional shares of the preferred stock)
in the first three years following issuance, except that the
applicable dividend rate for this purpose is 13%. McDermott may
redeem the preferred stock at any time for an amount per share
equal to the liquidation preference plus all accrued and unpaid
dividends. The warrants will be exercisable at $0.01 per share basis and have a term of ten
years from the closing. The closing of the private placement is
currently scheduled for November 29,
2018 with Barclays Capital Inc. acting as the lead placement
agent. Goldman Sachs Investment Banking acted as advisor to The
Merchant Banking Division of The Goldman Sachs Group Inc.
Integration and Combination Profitability Initiative
(CPI)
Post-Combination integration continues to progress well and is
focused on five elements: culture, work process, revenue synergies,
IT systems and CPI. A Cultural Integration Team facilitated six
cultural integration summits around the globe to lead the
effort in creating a new, common McDermott culture. Input from the
summits was used to develop and roll-out a new, unified purpose and
set of values. As discussed last quarter, we have adjusted our
operating model to account for our new, broader portfolio and
footprint and implemented the One McDermott Way across the current
project portfolio and prospective project bids, driving value for
customers and shareholders. We have also begun to realize the
benefits of the Combination through revenue synergies, booking over
$1.6 billion in new project awards
that we believe neither legacy company would have won
independently. Progress on streamlined IT systems is
progressing well, as the Company has now completed the global
Enterprise Systems Blueprint and initiated the Global ERP System
Design Phase.
McDermott increased its CPI annual run rate savings target to
$475 million, up from the previous
target of $350 million. McDermott's
operating results for the three months ended September 30, 2018 include approximately
$40 million of such savings. As
of September 30, 2018, McDermott had
taken actions expected to result in $319
million of annualized run rate savings. The $475 million annualized run rate is expected to
be fully actioned by the end of 2019. Anticipated costs to achieve
CPI savings have been reduced to $190
million as a result of a recent accounting pronouncement
that provides for the capitalization of certain cloud computing
software implementation costs to the balance sheet. Costs of
$31 million were recognized in the
third quarter of 2018 and were $106
million cumulatively. Additionally, McDermott had a one-time
benefit of $52 million resulting from
the sale of the former CB&I administrative headquarters.
Reporting Segment Update
McDermott's segment reporting is presented as North, Central and
South America, or NCSA;
Europe, Africa, Russia and Caspian, or EARC; Middle East and North Africa, or MENA; Asia Pacific, or APAC; and Technology, or
TECH. The Company also reports results for Corporate. Segment
and Corporate results are summarized below.
Segment Financial
Highlights
|
Three Months Ended
Sep 30, 2018
|
|
|
Segment Operating
Results
|
|
|
|
|
|
|
|
|
|
|
|
|
NCSA
|
|
|
EARC
|
|
|
MENA
|
|
|
APAC
|
|
|
TECH
|
|
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
New Orders
|
$
|
2,297
|
|
|
$
|
329
|
|
|
$
|
7
|
|
|
$
|
134
|
|
|
$
|
285
|
|
|
|
|
$
|
-
|
|
|
$
|
3,052
|
|
Backlog1
|
|
6,519
|
|
|
|
1,502
|
|
|
|
2,164
|
|
|
|
713
|
|
|
|
614
|
|
|
|
|
|
-
|
|
|
|
11,512
|
|
Revenue
|
|
1,516
|
|
|
|
77
|
|
|
|
473
|
|
|
|
75
|
|
|
|
148
|
|
|
|
|
|
-
|
|
|
|
2,289
|
|
Book-to-Bill
|
|
1.5
|
x
|
|
|
4.3
|
x
|
|
|
0.0
|
x
|
|
|
1.8
|
x
|
|
|
1.9
|
x
|
|
|
|
|
-
|
|
|
|
1.3
|
x
|
Operating
Income
|
|
97
|
|
|
|
(13)
|
|
|
|
89
|
|
|
|
9
|
|
|
|
20
|
|
|
|
|
|
(73)
|
|
|
|
129
|
|
Operating
Margin
|
|
6.4
|
%
|
|
|
-16.9
|
%
|
|
|
18.8
|
%
|
|
|
12.0
|
%
|
|
|
13.5
|
%
|
|
|
|
|
-
|
|
|
|
5.6
|
%
|
Intangibles
Amortization
|
|
12
|
|
|
|
5
|
|
|
|
7
|
|
|
|
0
|
|
|
|
43
|
|
|
|
|
|
-
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating
Income2
|
|
109
|
|
|
|
(8)
|
|
|
|
96
|
|
|
|
9
|
|
|
|
63
|
|
|
|
|
|
(37)
|
|
|
|
232
|
|
Adjusted Operating
Margin2
|
|
7.2
|
%
|
|
|
-10.1
|
%
|
|
|
20.3
|
%
|
|
|
12.4
|
%
|
|
|
42.8
|
%
|
|
|
|
|
-
|
|
|
|
10.2
|
%
|
Capex
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
|
4
|
|
|
|
-
|
|
|
|
|
|
11
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Offering
Financial Highlights
|
Three Months Ended
Sep 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
&
Subsea
|
|
|
LNG
|
|
|
Downstream
|
|
|
Power
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
New Orders
|
$
|
336
|
|
|
$
|
8
|
|
|
$
|
2,093
|
|
|
$
|
614
|
|
|
$
|
3,052
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
2,886
|
|
|
|
1,578
|
|
|
|
5,417
|
|
|
|
1,631
|
|
|
|
11,512
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
548
|
|
|
|
553
|
|
|
|
860
|
|
|
|
328
|
|
|
|
2,289
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: All amounts
have been rounded to the nearest million. Totals may not foot as a
result of rounding.
|
1 Our
backlog is equal to our Remaining Performance Obligations (RPOs) as
determined in accordance with U.S. GAAP.
|
2 Adjusted
Operating Income and Margin, by segment, are non-GAAP measures.
Reconciliations to the most comparable GAAP measures are provided
in the appendix entitled "Reconciliation of Segment Non-GAAP
Financial Measures to GAAP Financial Measures."
|
North, Central and South
America (NCSA)
Revenues of $1,516 million in NCSA
were primarily driven by the Cameron LNG, Freeport LNG, LACC and
Total Ethane Cracker projects. Additional contributors were the
Shintech, Abkatun A-2 and the Entergy power projects. Operating
income was $97 million, with an
operating income margin of 6.4% during the quarter. Excluding the
impact of intangibles amortization, adjusted operating income for
the third quarter of 2018 was $109
million, representing an adjusted operating income margin of
7.2%.
Key operational achievements in the quarter included successful
completion of the first offshore campaign on Angelin, onshore
commissioning activities on Abkatun A-2 in preparation for sail
away of the deck during the fourth quarter and good progress on
handover of sub-systems to the customer on the LACC and Shintech
projects. Cameron LNG is progressing with commencement of
commissioning on Phase 1 expected in the fourth quarter and first
LNG expected in the first quarter of 2019. On the Freeport LNG
project, pipe installation and testing activities on Train 1 are
substantially complete, with Train 2 progressing as expected and
prefabrication of pipe for Train 3 completed and delivered to the
site.
Europe, Africa, Russia and Caspian (EARC)
Revenues of $77 million in EARC
were primarily driven by continuing activities on two downstream
projects in Russia and offshore
activity on the Total Tyra project. Operating loss of $13 million and operating loss margin of 16.9%
were impacted by fixed costs. Excluding the impact of intangibles
amortization, adjusted operating loss for the third quarter of 2018
was $8 million, representing an
adjusted operating loss margin of 10.1%.
The Total Tyra project continued to progress on schedule with
procurement activities taking place in the quarter and the
commencement of fabrication early in the fourth quarter. The full
EPC scope of the Lukoil DCU project in Russia was awarded late in the quarter. A FEED
for the GALP Reformer project is currently being executed, with
preparation for value engineering taking place.
Middle East and North Africa (MENA)
Revenues of $473 million in MENA
were primarily driven by high levels of fabrication and marine
activity for offshore projects in the segment. Key contributors
were the Saudi Aramco projects Safaniya Phase 5, Safaniya Phase 6,
LTA II and 13 Jackets, as well as the ADNOC Crude Flexibility
project. Operating income was $89
million, with an operating income margin of 18.8%. Excluding
the impact of intangibles amortization, adjusted operating income
for the third quarter of 2018 was $96
million, representing an adjusted operating income margin of
20.3%.
During the third quarter, Saudi Aramco Safaniya Phase 5
progressed according to schedule, with all of the platforms,
pipelines, umbilicals and cables successfully installed and hook-up
only remaining on one platform. Fabrication on Safaniya Phase 6 is
proceeding according to schedule, with preparations underway for
the offshore dredging scope. Seven of the 13 jackets on the Saudi
Aramco 13 Jackets project have been installed and installation of
the remaining six is scheduled for early in the fourth quarter.
Fabrication on the Bul Hanine project is underway and progressing
according to schedule. The Sasref project is progressing according
to schedule, with preparation for the turnaround scope in early
2019. Work has commenced on the Belbazem Re-Select FEED for ADNOC
in McDermott's Jebel Ali engineering center.
Asia Pacific (APAC)
Revenues of $75 million in APAC
were driven by closeout activities on the Woodside Greater Western
Flank II project, procurement and engineering progress on the
Reliance KG-D6 project and activities on a storage tank project in
the Philippines. Operating income
of $9 million and margin of 12.0%
were primarily attributable to close-out improvements on the
completion of the pipelay and offshore construction campaign on the
Greater Western Flank Phase II project in Australia and various other projects.
The Woodside Greater Western Flank II project was fully closed
out during the quarter, with the receipt of the offshore completion
certificate. The Posco Daewoo Shwe project is progressing on track,
with completion of the initial set-up phase. The Reliance KG-D6
project continued with preparations for the R Cluster first
offshore campaign commencing in the fourth quarter, as well as the
award of the S cluster scope located in the same field. In
the Philippines, JG Summit, a
storage tank project, is progressing well, representing re-entry
into the Philippine market. The approximately $700 million contract for ONGC KG-DWN 98/2 in
India was also awarded to
McDermott in consortium with BHGE and Larsen and Toubro early in
the fourth quarter.
Technology (TECH)
Revenues of $148 million and
operating income of $20 million in
the Technology segment for the third quarter of 2018 were primarily
driven by licensing and proprietary supply in the petrochemical and
refining markets. Approximately half of the revenue was
attributable to proprietary supply, including catalysts. Operating
income was positively impacted by strong execution progress, earned
fees and process performance. Excluding the impact of
intangibles amortization, adjusted operating income for the third
quarter of 2018 was $63 million,
representing an adjusted operating income margin of 42.8%.
Highlights from the quarter include continued progress in
working with McDermott's onshore business to develop a 2,000 KTA
standard ethylene plant design to position the Company for the next
wave of U.S. ethane crackers. Additionally, the business is
enhancing its sales presence in the Middle East to more effectively address large
upcoming investments in petrochemicals in the region. The TECH
awards announced in the third quarter provide McDermott opportunity
for the sale of additional products and services.
Corporate
Corporate includes certain corporate and other non-operating
activities, including the expense of certain unallocated operating
costs. Corporate expense in the third quarter of 2018 was
$73 million, mainly attributable to
selling, general, administrative and other expenses of $22 million, unallocated direct operating
expenses of $20 million and
$31 million of costs to achieve CPI.
Unallocated direct operating expenses were primarily driven by
lower than standard utilization of certain marine assets.
Revenue Pipeline
McDermott's revenue opportunity pipeline consists of Backlog,
Bids & Change Orders Outstanding and Target Projects, which are
those projects McDermott expects to be awarded in the market in the
next five quarters. McDermott defines Backlog as Remaining
Performance Obligations (RPOs) as determined in accordance with
GAAP.
Revenue Pipeline 5
Quarter Look Ahead
|
As
of
|
|
|
|
|
|
|
Sep 30,
2018
|
|
|
Jun 30,
2018
|
|
|
Mar 31,
2018
|
|
|
Dec 31,
2017
|
|
|
Sep 30,
2017
|
|
|
|
|
|
|
($ in
billions)
|
|
|
|
|
|
Backlog
|
$
|
11.5
|
|
|
$
|
10.2
|
|
|
$
|
3.4
|
|
|
$
|
3.9
|
|
|
$
|
2.4
|
|
|
|
|
|
Bids & Change
Orders Outstanding1
|
|
20.7
|
|
|
|
19.0
|
|
|
|
7.5
|
|
|
|
4.4
|
|
|
|
5.4
|
|
|
|
|
|
Targets2
|
|
48.1
|
|
|
|
49.3
|
|
|
|
14.1
|
|
|
|
16.2
|
|
|
|
12.6
|
|
|
|
|
|
Total
|
|
80.3
|
|
|
|
78.5
|
|
|
|
25.0
|
|
|
|
24.5
|
|
|
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Pipeline
by Segment
|
As of Sep 30,
2018
|
|
|
NCSA
|
|
|
EARC
|
|
|
MENA
|
|
|
APAC
|
|
|
TECH
|
|
|
Total
|
|
|
($ in
billions)
|
|
Backlog
|
$
|
6.5
|
|
|
$
|
1.5
|
|
|
$
|
2.2
|
|
|
$
|
0.7
|
|
|
$
|
0.6
|
|
|
$
|
11.5
|
|
Bids & Change
Orders Outstanding1
|
|
8.7
|
|
|
|
4.4
|
|
|
|
3.7
|
|
|
|
3.5
|
|
|
|
0.5
|
|
|
|
20.7
|
|
Targets2
|
|
23.2
|
|
|
|
5.3
|
|
|
|
14.1
|
|
|
|
3.8
|
|
|
|
1.8
|
|
|
|
48.1
|
|
Total
|
|
38.3
|
|
|
|
11.2
|
|
|
|
19.9
|
|
|
|
8.0
|
|
|
|
2.8
|
|
|
|
80.3
|
|
|
Note: All amounts
have been rounded to the nearest tenth of a billion. Totals may not
foot as a result of rounding.
|
1 There is
no assurance that bids outstanding will be awarded to McDermott or
that outstanding change orders ultimately will be approved and paid
by the applicable customers in the full amounts requested or at
all.
|
2 Target
projects are those that McDermott has identified as anticipated to
be awarded by customers or prospective customers in the next five
quarters through competitive bidding processes and capable of being
performed by McDermott. There is no assurance that target projects
will be awarded to McDermott or at all.
|
At the end of the third quarter of 2018, McDermott's revenue
opportunity pipeline was $80.3
billion, primarily driven by NCSA and MENA. The revenue
pipeline is comprised of backlog of $11.5
billion, bids and change orders outstanding of $20.7 billion and target projects of $48.1 billion. We continue to see market recovery
in the offshore/subsea, downstream and LNG markets as reflected by
our strong revenue opportunity pipeline, increased backlog and
increased bids outstanding.
Guidance and Preliminary Outlook
McDermott is updating its guidance for the second half of 2018.
Guidance is based on the Company's existing portfolio and capital
structure as of September 30, 2018.
We continue to see solid revenues and adjusted EBITDA for the
second half of 2018 reflecting the continued strong, growing
revenue opportunity pipeline. Guidance for cash flow and related
metrics has been adjusted to reflect the anticipated incremental
cash usage due to the changes in estimates on the legacy focus
projects.
Second Half 2018
Guidance
|
Second
Half
2018
Guidance
|
|
($ in millions,
except per
share amounts or as
indicated)
|
Revenues
|
$4.8B -
5.1B
|
Operating
Income
|
$200 - 230
|
Operating
Margin
|
4.2 -
4.5%
|
Net Interest
Expense1
|
~$170
|
Income Tax
Expense
|
~$65
|
Net Income
|
$(10) -
(20)
|
Diluted Net Income,
Per Share
|
$(0.06) -
(0.11)
|
Diluted Share
Count
|
~180
|
EBITDA2
|
$375 - 415
|
|
|
Adjustments
|
|
Transaction
Costs3
|
~$5
|
Costs to Achieve
CPI4
|
~$75
|
Intangibles
Amortization5
|
~$130
|
|
|
Adjusted Earnings
Metrics
|
|
Adjusted Operating
Income2
|
$405 - 435
|
Adjusted Operating
Margin2
|
8.0% -
8.5%
|
Adjusted Net
Income2
|
$150 - 160
|
Adjusted
EPS2
|
$0.31 -
0.36
|
Adjusted
EBITDA2
|
$450 - 490
|
|
|
Cash Flow &
Other Metrics
|
|
Cash from Operating
Activities
|
$(520) -
(540)
|
Capex
|
~$60
|
Free Cash
Flow2
|
$(580) -
(600)
|
Cash Interest / DIC
Amortization Interest
|
~$150 /
~$20
|
Cash Taxes
|
~$95
|
Corporate and Other
Operating Income6
|
$(200) -
(225)
|
Cash, Restricted Cash
and Cash Equivalents
|
$450 - 500
|
Gross
Debt7
|
~$3.6B
|
Net Working
Capital
|
~$(1.5B)
|
|
1 Net
interest expense is gross interest expense less capitalized
interest and interest income.
|
2 The
calculations of EBITDA, adjusted operating income, adjusted
operating margin, adjusted net income, adjusted EPS, adjusted
EBITDA and free cash flow, which are non-GAAP measures, are shown
in the appendix entitled "Reconciliation of Forecast Non-GAAP
Financial Measures to Forecast GAAP Financial Measures."
|
3
Transaction costs primarily represent success fees incurred after
the Combination. No tax impact is forecasted for these
costs.
|
4 Costs to
achieve CPI include restructuring and integration costs. The
forecasted tax impact of these costs is approximately $5
million.
|
5
Intangibles amortization represents the amortization of
project-related and other intangibles. The forecasted tax impact of
the amortization is approximately $30 million.
|
6
Corporate and Other represents the operating income (loss) from
corporate and non-operating activities, including corporate
expenses, certain centrally managed initiatives, impairments,
year-end mark-to-market ("MTM") pension actuarial gains and losses,
costs not attributable to a particular reporting segment, and
unallocated direct operating expenses associated with the
underutilization of vessels, fabrication facilities and engineering
resources.
|
7 Ending
gross debt excludes debt issuance costs and capital lease
obligations.
|
Conference
Call
McDermott has scheduled a conference call and webcast related to
its third quarter 2018 results at 4:00
p.m., U.S. Central time, today. Shareholders and other
interested parties are invited to listen to the call by
visiting www.mcdermott-investors.com or by calling
1-706-634-2259 (Conference ID: 9073394). A presentation
of supplemental financial information will be available on
McDermott's Investor Relations site at that time. A replay of
the webcast will be available on the Company's website for seven
days after the call.
About the Company
McDermott is a premier, fully integrated provider of technology,
engineering and construction solutions to the energy industry. For
more than a century, customers have trusted McDermott to design and
build end-to-end infrastructure and technology solutions to
transport and transform oil and gas into the products the world
needs today. Our proprietary technologies, integrated expertise and
comprehensive solutions deliver certainty, innovation and added
value to energy projects around the world. Customers rely on
McDermott to deliver certainty to the most complex projects, from
concept to commissioning. It is called the "One McDermott Way."
Operating in over 54 countries, McDermott's locally focused and
globally-integrated resources include approximately 40,000
employees and engineers, a diversified fleet of specialty marine
construction vessels and fabrication facilities around the world.
To learn more, visit www.mcdermott.com.
About Goldman Sachs Merchant Banking Division
Founded in 1869, The Goldman Sachs Group, Inc. is a leading
global investment banking, securities and investment management
firm. Goldman Sachs Merchant Banking Division is the primary center
for the firm's long-term principal investing activity. With nine
offices across seven countries, Goldman Sachs MBD is one of the
leading private capital investors in the world with equity and
credit investments across corporate, real estate, and
infrastructure strategies. Since 1986, the group has invested
approximately $190 billion of levered
capital across a number of geographies, industries and transaction
types.
Non-GAAP Measures
This communication includes several "non-GAAP" financial
measures as defined under Regulation G of the U.S. Securities
Exchange Act of 1934, as amended. We report our financial results
in accordance with GAAP, but believe that certain non-GAAP
financial measures provide useful supplemental information to
investors regarding the underlying business trends and performance
of our ongoing operations and are useful for period-over-period
comparisons of those operations. The forecast non-GAAP measures we
have presented in this communication include forecast EBITDA,
adjusted operating income, adjusted operating income margin,
adjusted net income, adjusted EPS, free cash flow and adjusted
EBITDA. We believe these forward-looking financial measures are
within reasonable measure.
Non-GAAP measures include EBITDA, adjusted EPS, adjusted net
income, adjusted operating income, adjusted operating income
margin, free cash flow and adjusted EBITDA, in each case excluding
the impacts of certain identified items. The excluded items
represent items that our management does not consider to be
representative of our normal operations. We believe that these
measures are useful measures for investors to review, because they
provide a consistent measure of the underlying financial results of
our ongoing business and, in our management's view, allow for a
supplemental comparison against historical results and expectations
for future performance. Furthermore, our management uses each of
these measures as measures of the performance of our operations for
budgeting and forecasting, as well as employee incentive
compensation. However, Non-GAAP measures should not be considered
as substitutes for operating income, net income or other data
prepared and reported in accordance with GAAP and should be viewed
in addition to our reported results prepared in accordance with
GAAP.
We define free cash flow as cash flows from operations less
capital expenditures. We believe investors consider free cash flow
as an important measure, because it generally represents funds
available to pursue opportunities that may enhance stockholder
value, such as making acquisitions or other investments. Our
management uses free cash flow for that reason. We define EBITDA as
net income plus depreciation and amortization, interest expense,
net, and provision for income taxes. We define adjusted EBITDA as
EBITDA adjusted to exclude the impacts of certain identified items.
We have included EBITDA and adjusted EBITDA disclosures in this
communication because EBITDA is widely used by investors for
valuation and comparing our financial performance with the
performance of other companies in our industry. Our management also
uses EBITDA and adjusted EBITDA to monitor and compare the
financial performance of our operations. EBITDA and adjusted EBITDA
do not give effect to the cash that we must use to service our debt
or pay our income taxes, and thus do not reflect the funds actually
available for capital expenditures, dividends or various other
purposes. Our presentations of free cash flow, EBITDA and adjusted
EBITDA may not be comparable to similarly titled measures in other
companies' reports. You should not consider free cash flow, EBITDA
and adjusted EBITDA in isolation from, or as substitutes for, net
income or cash flow measures prepared in accordance with U.S.
GAAP.
Reconciliations of these non-GAAP financial measures and
forecast non-GAAP financial measures to the most comparable GAAP
measures are provided in the tables included in this
communication.
Forward-Looking Statements
In accordance with the Safe Harbor provisions of the Private
Securities Litigation Reform Act of 1995, McDermott cautions that
statements in this communication which are forward-looking, and
provide other than historical information, involve risks,
contingencies and uncertainties that may impact actual results of
operations of McDermott. These forward-looking statements include,
among other things, statements about 2018 guidance, project
milestones and percentage of completion and expected timetables,
expectation of no further material changes in cost estimates on
identified projects, cost recoveries on projects, expected results
from the application of the One McDermott Way to legacy CB&I
projects, increased opportunities in the market, backlog, bids and
change orders outstanding, target projects and revenue opportunity
pipeline, to the extent these may be viewed as indicators of future
revenues or profitability, the contemplated sale of the U.S. pipe
fabrication and tank storage businesses and the anticipated timing
and use of proceeds from those transactions, targeted savings from
cost synergies and the other expected impacts of CPI, including
anticipated CPI implementation costs, the schedule for the closing
of the private placement and the expected use of proceeds from that
transaction, the Company's potential and our beliefs with respect
to the combination with CB&I. Although we believe that the
expectations reflected in those forward-looking statements are
reasonable, we can give no assurance that those expectations will
prove to have been correct. Those statements are made by using
various underlying assumptions and are subject to numerous risks,
contingencies and uncertainties, including, among others: the
possibility that the expected CPI savings from the recently
completed combination will not be realized, or will not be realized
within the expected time period; difficulties related to the
integration of McDermott and CB&I; disruption from the
combination making it more difficult to maintain relationships with
customers, employees, regulators or suppliers; the diversion of
management time and attention to integration matters; adverse
changes in the markets in which McDermott operates or credit
markets; the inability of McDermott to execute on contracts in
backlog successfully; changes in project design or schedules; the
availability of qualified personnel; changes in the terms, scope or
timing of contracts; contract cancellations; change orders and
other modifications and actions by customers and other business
counterparties of McDermott; changes in industry norms; and adverse
outcomes in legal or other dispute resolution proceedings. If one
or more of these risks materialize, or if underlying assumptions
prove incorrect, actual results may vary materially from those
expected. You should not place undue reliance on forward-looking
statements. For a more complete discussion of these and other risk
factors, please see each of McDermott's annual and quarterly
filings with the U.S. Securities and Exchange Commission (the
"SEC"), including its annual report on Form 10-K for the year ended
December 31, 2017 and subsequent
quarterly reports on Form 10-Q. This communication reflects the
views of McDermott's management as of the date hereof. Except to
the extent required by applicable law, McDermott undertakes no
obligation to update or revise any forward-looking statement.
Contact:
Investors & Financial Media
Scott Lamb
Vice President, Investor Relations
832.513.1068
scott.lamb@mcdermott.com
Global Media Relations
Gentry Brann
Global Vice President, Communications
+1 281 870 5269
Gentry.Brann@McDermott.com
McDERMOTT
INTERNATIONAL, INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September
30,
|
|
Nine Months Ended
September
30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
($ in millions,
except per share amounts)
|
Revenues
|
$
|
2,289
|
|
$
|
959
|
|
$
|
4,632
|
|
$
|
2,267
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
operations
|
|
1,986
|
|
|
774
|
|
|
3,948
|
|
|
1,853
|
Project related
intangibles amortization
|
|
30
|
|
|
-
|
|
|
42
|
|
|
-
|
Total cost of
operations
|
|
2,016
|
|
|
774
|
|
|
3,990
|
|
|
1,853
|
Research and
development expenses
|
|
8
|
|
|
2
|
|
|
13
|
|
|
3
|
Selling, general and
administrative expenses
|
|
64
|
|
|
55
|
|
|
188
|
|
|
142
|
Other intangibles
amortization
|
|
25
|
|
|
-
|
|
|
35
|
|
|
-
|
Transaction
costs
|
|
5
|
|
|
-
|
|
|
45
|
|
|
-
|
Restructuring and
integration costs
|
|
31
|
|
|
-
|
|
|
106
|
|
|
-
|
Other operating
expenses (income), net
|
|
1
|
|
|
-
|
|
|
2
|
|
|
(2)
|
Total
expenses
|
|
2,150
|
|
|
831
|
|
|
4,379
|
|
|
1,996
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
investments in unconsolidated affiliates
|
|
3
|
|
|
(3)
|
|
|
2
|
|
|
(9)
|
Investment in
unconsolidated affiliates-related amortization
|
|
(13)
|
|
|
-
|
|
|
(13)
|
|
|
-
|
Operating
income
|
|
129
|
|
|
125
|
|
|
242
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
|
(86)
|
|
|
(12)
|
|
|
(169)
|
|
|
(51)
|
Other non-operating
income (expense), net
|
|
1
|
|
|
-
|
|
|
(13)
|
|
|
(2)
|
Total other expense,
net
|
|
(85)
|
|
|
(12)
|
|
|
(182)
|
|
|
(53)
|
|
|
|
|
|
-
|
|
|
|
|
|
|
Income before
provision for income taxes
|
|
44
|
|
|
113
|
|
|
60
|
|
|
209
|
|
|
|
|
|
-
|
|
|
|
|
|
|
Income tax expense
(benefit)
|
|
44
|
|
|
19
|
|
|
(19)
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating loss
from investments in unconsolidated affiliates
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2)
|
Net income
|
|
-
|
|
|
94
|
|
|
79
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net (loss)
income attributable to noncontrolling interests
|
|
(2)
|
|
|
(1)
|
|
|
(5)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to McDermott
|
$
|
2
|
|
$
|
95
|
|
$
|
84
|
|
$
|
153
|
Net income per share
attributable to McDermott
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.01
|
|
$
|
1.00
|
|
$
|
0.60
|
|
$
|
1.70
|
Diluted
|
$
|
0.01
|
|
$
|
1.00
|
|
$
|
0.60
|
|
$
|
1.61
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in the
computation of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
180
|
|
|
95
|
|
|
140
|
|
|
90
|
Diluted
|
|
181
|
|
|
95
|
|
|
141
|
|
|
95
|
McDERMOTT
INTERNATIONAL, INC.
|
EARNINGS PER SHARE
COMPUTATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
Sep
30,
|
|
Nine Months Ended
Sep 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
($ in thousands,
except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to McDermott International, Inc.
|
$
|
2
|
|
$
|
95
|
|
$
|
84
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares (basic)
|
|
180
|
|
|
95
|
|
|
140
|
|
|
90
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
Tangible equity
units
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4
|
Stock options,
restricted stock and restricted stock units
|
|
1
|
|
|
-
|
|
|
1
|
|
|
1
|
Adjusted weighted
average common shares and assumed exercises of stock options and
vesting of stock awards (diluted)
|
|
181
|
|
|
95
|
|
|
141
|
|
|
95
|
Net income
attributable to McDermott International, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
$
|
0.01
|
|
$
|
1.00
|
|
$
|
0.60
|
|
$
|
1.70
|
Diluted:
|
$
|
0.01
|
|
$
|
1.00
|
|
$
|
0.60
|
|
$
|
1.61
|
SUPPLEMENTARY
DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
Sep 30,
|
|
Nine Months Ended
Sep 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
($ in
millions)
|
Depreciation &
amortization
|
$
|
107
|
|
$
|
28
|
|
$
|
187
|
|
$
|
78
|
Capital
expenditures
|
|
19
|
|
|
16
|
|
|
62
|
|
|
97
|
Backlog
|
|
11,512
|
|
|
2,428
|
|
|
11,512
|
|
|
2,428
|
McDERMOTT
INTERNATIONAL, INC.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
($ in millions,
except per share amounts)
|
Assets
|
(Unaudited)
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash
equivalents ($158 and $0 related to variable interest
entities ("VIEs"))
|
$
|
580
|
|
$
|
390
|
Restricted cash
and cash equivalents
|
|
325
|
|
|
18
|
Accounts
receivable—trade, net ($28 and $0 related to VIEs)
|
|
1,093
|
|
|
328
|
Accounts
receivable—other ($59 and $0 related to VIEs)
|
|
252
|
|
|
42
|
Contracts in
progress ($63 and $0 related to VIEs)
|
|
723
|
|
|
621
|
Project related
intangible assets, net
|
|
176
|
|
|
-
|
Inventory
|
|
58
|
|
|
-
|
Other current
assets ($26 and $0 related to VIEs)
|
|
145
|
|
|
36
|
Total current
assets
|
|
3,352
|
|
|
1,435
|
Property, plant
and equipment, net
|
|
2,106
|
|
|
1,666
|
Accounts
receivable—long-term retainages
|
|
71
|
|
|
39
|
Investments in
unconsolidated affiliates
|
|
444
|
|
|
8
|
Goodwill
|
|
4,708
|
|
|
-
|
Other
intangibles, net
|
|
1,006
|
|
|
-
|
Deferred income
taxes
|
|
181
|
|
|
18
|
Other
non-current assets
|
|
188
|
|
|
57
|
Total
assets
|
$
|
12,056
|
|
$
|
3,223
|
Liabilities and
Equity
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Current
maturities of long-term debt
|
$
|
35
|
|
$
|
24
|
Current portion
of long-term lease obligations
|
|
7
|
|
|
-
|
Accounts payable
($328 and $0 related to VIEs)
|
|
874
|
|
|
279
|
Advance billings
on contracts ($476 and $0 related to VIEs)
|
|
1,733
|
|
|
32
|
Project related
intangible liabilities, net
|
|
76
|
|
|
-
|
Accrued
liabilities ($110 and $0 related to VIEs)
|
|
1,579
|
|
|
372
|
Total current
liabilities
|
|
4,304
|
|
|
707
|
Long-term
debt
|
|
3,397
|
|
|
512
|
Long-term lease
obligations
|
|
68
|
|
|
1
|
Deferred income
taxes
|
|
77
|
|
|
28
|
Other
non-current liabilities
|
|
614
|
|
|
186
|
Total
liabilities
|
|
8,460
|
|
|
1,434
|
Commitments and
contingencies
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
Common stock,
par value $1.00 per share, authorized 255 shares; issued 183 and 98
shares, respectively
|
|
183
|
|
|
98
|
Capital in
excess of par value
|
|
3,488
|
|
|
1,858
|
Retained
earnings/ (accumulated deficit)
|
|
56
|
|
|
(48)
|
Accumulated
other comprehensive loss
|
|
(84)
|
|
|
(51)
|
Treasury stock,
at cost: 3 and 3 shares, respectively
|
|
(96)
|
|
|
(96)
|
Total McDermott
Stockholders' Equity
|
|
3,547
|
|
|
1,761
|
Noncontrolling
interest
|
|
49
|
|
|
28
|
Total
stockholders' equity
|
|
3,596
|
|
|
1,789
|
Total
liabilities and stockholders' equity
|
$
|
12,056
|
|
$
|
3,223
|
McDERMOTT
INTERNATIONAL, INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
|
Nine Months Ended
September 30,
|
|
2018
|
|
2017
|
|
($ in
millions)
|
Cash flows from
operating activities:
|
|
|
|
|
|
Net income
|
$
|
79
|
|
$
|
154
|
Non-cash items
included in net income:
|
|
|
|
|
|
Depreciation and
amortization
|
|
187
|
|
|
78
|
Debt issuance cost
amortization
|
|
27
|
|
|
-
|
Stock-based
compensation charges
|
|
36
|
|
|
20
|
Deferred
taxes
|
|
(86)
|
|
|
10
|
Other non-cash
items
|
|
2
|
|
|
8
|
Changes in operating
assets and liabilities, net of effects of businesses
acquired:
|
|
|
|
|
|
Accounts
receivable
|
|
130
|
|
|
120
|
Contracts in progress,
net of Advance billings on contracts
|
|
(318)
|
|
|
(673)
|
Inventory
|
|
4
|
|
|
-
|
Accounts
payable
|
|
123
|
|
|
339
|
Other current and
non-current assets
|
|
(52)
|
|
|
(29)
|
Investments in
unconsolidated affiliates
|
|
(2)
|
|
|
11
|
Other current and
non-current liabilities
|
|
84
|
|
|
98
|
Total cash provided
by operating activities
|
|
214
|
|
|
136
|
Cash flows from
investing activities:
|
|
|
|
|
|
CB&I combination
consideration, net of cash acquired of $498
|
|
(2,374)
|
|
|
-
|
Purchases of
property, plant and equipment
|
|
(62)
|
|
|
(97)
|
Advances related to
proportionately consolidated consortiums
|
|
(155)
|
|
|
-
|
Proceeds from asset
dispositions
|
|
55
|
|
|
55
|
Investments in
unconsolidated affiliates
|
|
(14)
|
|
|
(3)
|
Total cash used in
investing activities
|
|
(2,550)
|
|
|
(45)
|
Cash flows from
financing activities:
|
|
|
|
|
|
Proceeds from
issuance of long-term debt
|
|
3,560
|
|
|
-
|
Repayment of debt and
capital lease obligations
|
|
(531)
|
|
|
(231)
|
Advances related to
equity method joint ventures and proportionately consolidated
consortiums
|
|
67
|
|
|
-
|
Debt and letter of
credit issuance costs
|
|
(209)
|
|
|
(20)
|
Debt extinguishment
costs
|
|
(10)
|
|
|
-
|
Acquisition of
NCI
|
|
-
|
|
|
(11)
|
Repurchase of common
stock
|
|
(14)
|
|
|
(7)
|
Total cash provided
by (used in) financing activities
|
|
2,863
|
|
|
(269)
|
Effects of
exchange rate changes on cash, cash equivalents and restricted
cash
|
|
(30)
|
|
|
-
|
Net increase
(decrease) in cash, cash equivalents and restricted
cash
|
|
497
|
|
|
(178)
|
Cash, cash
equivalents and restricted cash at beginning of
period
|
|
408
|
|
|
612
|
Cash, cash
equivalents and restricted cash at end of period
|
$
|
905
|
|
$
|
434
|
McDERMOTT
INTERNATIONAL, INC.
|
RECONCILIATION OF
SEGMENT NON-GAAP TO GAAP FINANCIAL MEASURES
|
|
|
Three Months Ended
Sep 30, 2018
|
|
|
Segment Operating
Results
|
|
|
|
|
|
|
|
|
|
|
NCSA
|
|
|
EARC
|
|
|
MENA
|
|
|
APAC
|
|
|
TECH
|
|
|
Corporate
|
|
|
Total
|
|
Revenues
|
$
|
1,516
|
|
|
$
|
77
|
|
|
$
|
473
|
|
|
$
|
75
|
|
|
$
|
148
|
|
|
$
|
-
|
|
|
$
|
2,289
|
|
GAAP Operating
Income (Loss)
|
|
97
|
|
|
|
(13)
|
|
|
|
89
|
|
|
|
9
|
|
|
|
20
|
|
|
|
(73)
|
|
|
|
129
|
|
GAAP Operating
Margin
|
|
6.4
|
%
|
|
|
-16.9
|
%
|
|
|
18.8
|
%
|
|
|
12.0
|
%
|
|
|
13.5
|
%
|
|
|
-
|
|
|
|
5.6
|
%
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
Costs1
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
5
|
|
Costs to Achieve
CPI2
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
|
|
31
|
|
Intangibles
Amortization3
|
|
12
|
|
|
|
5
|
|
|
|
7
|
|
|
|
0
|
|
|
|
43
|
|
|
|
-
|
|
|
|
68
|
|
Total Non-GAAP Adjustments
|
|
12
|
|
|
|
5
|
|
|
|
7
|
|
|
|
0
|
|
|
|
43
|
|
|
|
36
|
|
|
|
103
|
|
Non-GAAP Operating
Income (Loss)
|
$
|
109
|
|
|
$
|
(8)
|
|
|
$
|
96
|
|
|
$
|
9
|
|
|
$
|
63
|
|
|
$
|
(37)
|
|
|
$
|
232
|
|
Non-GAAP Adjusted
Operating Margin
|
|
7.2
|
%
|
|
|
-10.1
|
%
|
|
|
20.3
|
%
|
|
|
12.4
|
%
|
|
|
42.8
|
%
|
|
|
-
|
|
|
|
10.2
|
%
|
|
1 We
recognized $5 million of transaction costs associated with the
Combination during the third quarter of 2018.
|
2 Costs to
achieve our Combination Profitability Initiatives (CPI) include
integration and restructuring costs. We incurred $31 million of
costs from CPI in the third quarter of 2018.
|
3
Intangibles amortization includes the amortization of all acquired
intangibles from the Combination, including project-related
intangibles, other intangible assets (process technologies, trade
names, trade markets and customer relationships) and amortization
of investments in unconsolidated affiliates.
|
McDERMOTT
INTERNATIONAL, INC.
|
RECONCILIATION OF
FORECAST NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL
MEASURES
|
|
|
Second
Half
2018
Guidance
|
|
($ in
millions)
|
Revenues
|
$4.8B -
5.1B
|
Operating
Income
|
$200 - 230
|
Operating
Margin
|
4.2 -
4.5%
|
Transaction
Costs
|
~5
|
Costs to Achieve
CPI
|
~75
|
Intangibles
Amortization
|
~125
|
Total
Adjustments
|
~205
|
Adjusted Operating
Income
|
$405 - 435
|
Adjusted
Operating Margin
|
8.0% -
8.5%
|
Net
Income
|
$(10) -
(20)
|
Total
Adjustments
|
~205
|
Tax Impact of
Adjustments
|
~(35)
|
Adjusted Net
Income
|
$150 - 160
|
Less: Intangibles
Amortization
|
~(125)
|
Plus: Tax Impact of
Intangibles Amortization
|
~30
|
Subtotal
|
$55 - 65
|
Diluted Share
Count
|
~180
|
Adjusted
EPS
|
$0.31 -
0.36
|
Cash Flows from
Operating Activities
|
$(520) -
(540)
|
Capital
Expenditures
|
~60
|
Free Cash
Flow
|
$(580) -
(600)
|
GAAP Net Income
(Loss) Attributable to McDermott
|
$(10) -
(20)
|
Add:
|
|
Depreciation and
amortization
|
160 - 190
|
Interest expense,
net
|
~170
|
Provision for
taxes
|
~65
|
EBITDA
|
$375 - 415
|
Costs to Achieve
CPI
|
~75
|
Adjusted
EBITDA
|
$450 - 490
|
![new McDermott logo (PRNewsfoto/McDermott International, Inc.) new McDermott logo (PRNewsfoto/McDermott International, Inc.)](https://mma.prnewswire.com/media/693430/McDermott_Logo.jpg)
View original content to download
multimedia:http://www.prnewswire.com/news-releases/mcdermott-reports-third-quarter-2018-financial-and-operational-results-300740732.html
SOURCE McDermott International, Inc.